Latest news with #buildingcosts
Forbes
2 days ago
- Business
- Forbes
New Studies Explain Why Housing Is So Expensive And Why It Is So Hard To Make It Cheaper
Most Americans—more than 80% in a recent National Association of Home Builders poll—think housing affordability is a problem in their community. Yet despite the widespread agreement that housing is too expensive, it remains difficult for developers to build the housing needed to increase affordability. A few studies in the recent issue of the Journal of Economic Perspectives shed some light on what communities must do to reduce the price of housing and why doing what needs to be done is so hard. The first study examines perhaps the most logical cause of high housing costs—high building costs. The authors, Brian Potter of the Institute for Progress and Chad Syverson of the Booth School of Business, note that building costs account for 60% to 70% of the full cost of bringing a new house to market. If building costs have increased over time, then it would not be surprising to see housing costs go up, too. To track costs, they use housing cost data from RSMeans, a company that has been tracking cost data for the construction industry since the mid-20th century. They find that while building costs have exceeded overall inflation since the mid-1970s, these costs generally do a poor job of explaining housing prices. In a variety of cities over different time periods, growth in housing prices is substantially larger, and sometimes smaller, than growth in building costs. The table below shows the ten cities with the largest deviations in price from building costs over five-year intervals from 2010 to 2024. For example, over the 2020 to 2024 period, housing prices in Miami, FL grew 8.6% faster than building costs, while in Lake Charles, LA prices grew 2.8% slower than building costs. The authors also find that the cost-price relationship has weakened over time. This suggests that something besides building costs is having a growing impact on housing prices. They note that one such factor could be regulations that prevent additional supply in high-demand areas. Building on this first study, the next study by Boaz Abramson of Columbia Business School and Tim Landvoigt of the Wharton School estimates what happens when cities add more supply. They develop a model to evaluate the impacts of different housing policies on housing price-to-income and rent-to-income ratios. They examine a demand-side policy—direct housing subsidy—and two supply-side scenarios: One that increases supply at the top of the market and one that increases supply at the bottom of the market. The results for the subsidy are not what most people would expect. Their model estimates that giving people $100,000 towards the purchase of a house raises prices and worsens affordability when supply is unable to respond to the additional demand the subsidy creates. They also find that the subsidy increases rents, too, since some wealthier people who are indifferent between renting and buying at the higher price enter the rental market and bid up rents. The result is that most people end up worse off. As they say, 'The lesson is that only policies that raise supply (or decrease demand) will make housing more affordable.' Adding supply to the bottom of the market generates better results than the $100,000 subsidy and makes lower-quality housing more affordable, but the best policy according to the model is adding supply to the top. Adding supply to the more expensive end of the market reduces rents and prices across the entire housing-quality distribution. This may seem counterintuitive, but it makes sense. When more expensive housing is added to the market, wealthier people no longer compete with middle- and lower-income people for lower-quality housing. This decrease in demand for housing in the middle and lower end of the market leads to lower prices. As the authors say, 'In short, increasing the supply of housing in the top segment is more effective at reducing house-price-to-income ratios than adding supply in the bottom rental segment.' These modeling results are consistent with other research that shows adding more market rate housing, even expensive housing, improves affordability by allowing the filtering process to work: When wealthier people move into a new house, it frees up their old house for someone with slightly less income, which in turn frees up that person's house, and so on. This process makes it easier for everyone to afford a home. So, if building more housing makes housing more affordable, and there is plenty of evidence that it does, we should be building a lot more housing. But we are not. The third paper by law professor Chris Elmendorf and political science professors Clayton Nall and Stan Oklobdzija helps explain why. This study examines survey data to better understand how people think about the housing market in their communities. One common explanation for why people tend to dislike new development, including new housing, is the homevoter hypothesis. The idea is that homeowners who are also voters tend to have a lot of their wealth tied up in their house, which makes them leery of any nearby development and its associated ills—noise, traffic, loss of views—that may erode the value of their homes. As a result, they stymie new development to protect their largest asset. While this story makes some sense, the authors find little evidence for it in the survey data. For example, the homevoter hypothesis predicts that homeowners prefer higher housing prices since that increases the value of their asset while renters prefer lower prices since they do not get the benefit of asset appreciation. But in their survey, they find that 57% of homeowners would prefer prices to fall in the future, not increase. Unsurprisingly, 85% of renters would prefer prices to fall. Instead of the homevoter hypothesis, the authors suggest that the real reason people oppose new development is they do not understand housing markets. Only 35% of respondents correctly predicted that a significant increase in the supply of housing would reduce housing prices, all else equal. Only 31% correctly predicted that an increase in supply would reduce rents. Even more interesting is that this misunderstanding of supply and demand dynamics was unique to housing. As shown in the figure below from the paper, 86% of respondents correctly predicted how supply chain problems in the auto industry would impact used-car prices, while 59% correctly reasoned that better fertilizer would increase crop yields and reduce grain prices. As the authors put it, 'Supply skepticism…is distinctive to housing.' This lack of understanding has a few implications. First, voters who want lower prices will be less willing to support policies that increase housing supply since it is not clear to them that more supply helps. Second, since they do not really understand the forces at work, they will be more likely to support non-supply ideas to lower housing prices, such as rent control or direct subsidies. Sure enough, the authors find that more than 80% of respondents support rent control and down-payment subsidies while less than 55% support supply-side policies like reducing parking minimums or allowing more infill development, despite evidence showing these latter policies help reduce housing prices. A final implication from not understanding how housing markets work is placing blame on the wrong things. In the paper, the authors show that survey respondents were more likely to blame developers and landlords for high housing prices than state or local governments that restrict supply through regulations. This is wrong, but it helps explain why policies like rent control are popular: If voters believe developers and landlords, not supply and demand, control prices, it is not surprising they want government to take that power away though policies like rent control. The big takeaway from these three studies is clear. Building costs are not the main cause of high housing prices in most places. Instead, rules and regulations that restrict the supply of housing, such as minimum lot sizes, parking requirements, and height limits, are what make housing so expensive. Unfortunately, many people who say they want cheaper housing do not really understand how supply and demand work in the housing market. Advocates for more housing must continue to teach policymakers and voters how housing markets work to overcome this barrier. Since most people understand how supply and demand operate in other markets, this may not be as hard as it seems. Either way, there is still a lot of work to do.
Telegraph
21-07-2025
- Business
- Telegraph
Why Britain's home extension dream is dead
For decades, a bi-fold door and side return extension have been hallmarks of Middle England aspiration. But new data suggests Britain's appetite for home extensions has died amid soaring building costs and stretched household budgets. Planning approvals for home improvements and extensions have sunk to their lowest level in 10 years, according to analysis by estate agency Savills. There were 151,177 planning consents for housebuilder developments in England in the year to March, 8pc fewer than the year before and 27pc lower than the average for the preceding decade. Experts attributed the drop in planning permissions to rising material costs, cost of living pressures and high interest rates, which make borrowing for home improvements more expensive and cause mortgage payments to eat into disposable income. Paula Higgins, chief executive of Homeowners Alliance, said: 'It's not surprising that renovation plans are being put on hold – people are financially stretched just to get on the housing ladder, let alone invest in improvements. 'Many buyers underestimate the true costs of homeownership, with almost one in three younger homeowners regretting not budgeting for the full cost of buying and renovating their home. 'Add to that the ongoing cost of living pressures, and it's clear that homeowners have less money in their pockets to spend on upgrades. More people may now need to wait longer after buying to save up before they can afford renovation work.' Regional differences The fall in planning permissions contrasts with a surge in housing transactions, which were 24pc higher in the first quarter of 2025 compared to the same period in 2024. Lucian Cook, head of residential research at Savills, said: 'Typically, there is a strong correlation between property transactions and home improvements, as homeowners often undertake renovations shortly after moving in. However, this relationship became notably disjointed in 2023, with the gap between transactions and improvements reaching its widest point over the past 12 months.' Some areas have seen shorter drops in planning permission numbers than others; in London they fell just 3pc in the year to March, compared to 9.3pc in the South East and 10.7pc in the North East. 'The higher the house prices in an area, the more extending makes financial sense, meaning that more value can also be unlocked in London and the South compared with the Midlands and the North as build costs are less likely to outstrip the value added,' said Cook. The supply of properties on the market reached a 10-year high earlier this year, meaning buyers enjoy much greater choice, which means they are less likely to settle for a property that needs improvements, Cook added. 'With more properties available on the market and slightly weaker demand, our agents are reporting that buyers, who have greater choice, are increasingly favouring turn-key or ready-to-move homes.'
Telegraph
25-05-2025
- Business
- Telegraph
Why now is the perfect time for a home extension
Homeowners dreaming of an extension should act now, as the cost of building works has dropped by almost a third in a year. Trade directory Checkatrade found that the average cost of a building job had fallen by 28pc to £12,065 in the three months to March, compared to the same period in 2024. Experts said low demand for large renovation projects and wider availability of building materials had pushed costs down. Figures published by the Department for Business and Trade's latest building materials supply index found that deliveries of bricks had risen by 8.5pc compared to January last year, while concrete deliveries were up 4.2pc. The report found that building material prices were stabilising, having dipped below their peak in 2022 when supply chains faced heavy disruption. Building materials and labour soared in the wake of the pandemic, and Checkatrade said costs were further pushed up by the effects of Brexit. Jambu Palaniappan, of Checkatrade, said: 'We've seen demand for some of the bigger home improvement jobs dip over the past year, and as demand has slowed, prices have followed, making it more affordable for people to get work done. 'This drop in costs, combined with the usual seasonal uptick we see at the start of the year, has led to a big rise in certain types of home improvement projects recently, as consumers take advantage of better prices.' The website also found the number of interior design jobs commissioned had risen by 33pc since last year. Painting and decorating searches also increased 22pc. The website said general 'handyman' costs had also fallen significantly from £592 to £389 in the past 12 months, with tiling and electrical work similarly dropping by 25pc to £1,307. Jane Hewson, 64, a homeowner from Herefordshire, said she was planning an extension to the small barn next to her home with the hope of downsizing into it. She said: 'I don't want to move out of the area as I love it, but until recently it's been very difficult to get a decent builder.' Ms Hewson said she was provided quotes of around £95,000 plus VAT to extend the barn, but in more recent months has seen the price come down to the region of £75,000. She said: 'I was pleasantly surprised, but I don't think prices are going to come down again.' Although prices are falling, the Federation of Master Builders (MFB) has warned homeowners to exercise caution when approaching builders who do not have a licence. The trade body, together with the Homeowners Alliance lobby group, has called on the Government to introduce a mandatory licensing scheme for housebuilders. Without one, the MFB said homeowners had 'no legal safeguards to ensure builders meet basic standards'. Brian Berry, of the trade body, said: 'We can't allow just anyone to call themselves a builder any more. The Government must step up and bring in a licensing scheme that puts quality, safety, and accountability first.' Paula Higgins, of the Homeowners Alliance, added: 'I would hate to think how many people have fallen victim to rogue traders or poor-quality work, how many millions of pounds of households' money have been lost, and victims left to clear up the mess over the past decade alone. 'When it comes to appointing a builder, homeowners shouldn't have to cross their fingers and hope that their builder is one of the good ones. The Government needs to protect homeowners through licensing.'
BBC News
15-05-2025
- Business
- BBC News
Higher costs driving up Guernsey concrete prices
A leading supplier of construction materials in Guernsey says islanders face high prices for some products due to the costs to make Roussel, manager at Ronez, which supplies aggregate, asphalt and concrete, said rising shipping and labour costs were headwinds faced by the States last week requested a review into the cost of island concrete products after initial investigations found some were "twice as high" as in the UK. Guernsey's competition watchdog, which is conducting the review, said some builders had reported customers could no longer afford to have work carried out. 'Demand dropping out' Mr Roussel said higher shipping and labour costs were factored into the price of some of its said island's "small market size and the smaller amount of material produced leads to higher unit costs", but added prices had risen yearly in line with Byrne, chief executive of the Guernsey Competition and Regulatory Authority, said the review would look at solutions to reduce costs."The building sector has been saying that demand has been falling and this is almost certainly because the cost and viability of investment," he said."Demand is dropping out and that is a development that is potentially affecting growth, because if people are not spending in capital investment, that speaks to things as an economy it would be good for us to solve." 'Key priority' In authorising the study, the Committee for Economic Development said it would show if prices were too high and how it could be review was brought as the States looks to see more new housing built in the Development President Deputy Neil Inder said: "With the development of housing being a key priority of the States, the prices of input products such as concrete and aggregates directly impact the cost of house building."Several large firms in the island told the BBC demand remained buoyant despite higher costs.
The Sun
13-05-2025
- Business
- The Sun
Top 12 home improvement jobs from that have FALLEN in price revealed from plumbing to tiling
THE cost of carrying out home improvements has fallen by as much as 34% in the last 12 months. Exclusive data from Checkatrade has revealed the 12 DIY jobs that have seen the biggest price falls - and the combined savings total almost £11,000. Falling building costs have made carrying out home improvements more affordable for homeowners, with the average cost of a job down 28%. The reductions follow several years of price rises caused by factors including increased material prices across the board. Builders and tradespeople were also impacted by supply chain disruptions, which created scarcity and drove up prices further. Add to this inflation, energy costs and labour shortages and consumers had got used to receiving eye-watering quotes since 2020. However, data shows that prices have begun to fall and unsurprisingly the reduction in costs has seen a significant increase in those undertaking work on their homes in 2025. The biggest fall in prices has been seen in handyman services with the average cost of a job carried out in the first three months of 2025 34% cheaper than it was in 2024. The second largest reduction was seen in building work with the average price of a job falling by 28%, from £16,818 to £12,065. Other home improvements to have seen big price reductions include tiling (25%), electrical works (25%), scaffolding (22%) and windows doors and conservatories (22%). These were followed by bricklaying, which saw a 21% price decrease from an average of £3,165 in 2024 to £2,489 in 2025. Other jobs to have fallen include central heating work (18%), plumbing (17%) and groundworks (16%). Jambu Palaniappan, CEO at Checkatrade, said: 'After ongoing rising costs fuelled by Brexit and Covid, it's a welcome relief for consumers to see prices finally easing. "We've seen demand for some of the bigger home improvement jobs dip over the past year, and as demand has slowed, prices have followed – making it more affordable for people to get work done. "This drop in costs, combined with the usual seasonal uptick we see at the start of the year, has led to a big rise in certain types of home improvement projects recently, as consumers take advantage of better prices." Checkatrade has warned that the sudden reduction in price could leave consumers at risk of cowboys charging above market rates. So, the tradesperson platform has launched a Job Estimate Calculator to help people make informed decisions before appointing a contractor. The free-to-use tool draws on data from 1.5million jobs completed by the site's 50,000 vetted trade businesses to generate accurate quotes for projects. Many people have shared stories of cowboy builders with The Sun including a dad left almost bankrupt after sinking £120,000 on a nightmare loft conversion. A mum also told The Sun she had her life ruined after "cowboy builders" took nearly £200,000 for a home renovation. How to find a reliable trader Checkatrade and GoCompare have shared tips for spotting a cowboy. The warning signs: Someone who asks for a cash payment upfront A trader who refuses to draw up an official contract for work Doesn't offer written estimates including a timeline for completing the job Doesn't offer references from previous clients Say they work 'off the books' Anyone who knocks on your door and says they've noticed you need work doing Traders without an official premises or landline phone number Those who aren't a member of a reputable trade group, such as the Federation of Master Builders or the National Federation of Builders Their workforce keeps changing They repeatedly find further work that needs completing
